Economy of Bangladesh

Role of SMEs in Asian Economies

Role of SMEs in Asian Economies

Md. Joynal Abdin

The Independent on December 23, 2016

 

The Small and Medium Enterprises (SMEs) are considered as engine of growth throughout the world. About 97 per cent to 99 per cent of the enterprises of Asian developing countries are SMEs. This scale could be slightly different for different Asian countries. In the lowest side about 97.3 per cent of enterprises in China are SMEs, 97.3 per cent of enterprises in Malaysia are SMEs, 97.5 per cent of enterprises Kazakhstan are SMEs, 97.7 per cent of enterprises in Vietnam are SMEs, but in this highest side 99 per cent of Bangladeshi enterprises are SMEs, 99.4 per cent of enterprises in Singapore are SMEs, 99.5 per cent of Sri-Lankan enterprises are SMEs, 99.6 per cent of enterprises in Philippine are SMEs, 99.7 per cent of enterprises in Thailand are SMEs, 99.7 per cent of enterprises in Japan are SMEs and finally 99.9 per cent of enterprises in Republic of Korea are SME. SMEs are playing vital role in employment generation of respective countries for example SMEs are generating 87.7 per cent of enterprises employment of South Korea (Republic of Korea), 80.3 per cent of enterprises employment is generating by SMEs in Thailand, 75 per cent of non-agricultural employment of Bangladesh are generating by SMEs, 71.8 per cent of enterprises employment is generating by the SMEs in Cambodia etc. Similarly SMEs are contributing in promoting GDP Growth and increasing Export Earnings of respective countries. For example SMEs are generating 60 per cent of Indonesian and Chinese GDP; similarly they are contributing 47.6 per cent of the GDP of the Republic of Korea, 45 per cent of the GDP of Singapore, and 43.7 per cent of the GDP of Japan. In Bangladesh SMEs are contributing 25 per cent of GDP. In terms of Export Earnings, about 42.4 per cent of Indian export earnings come from SMEs, similarly 41.5 per cent of Chinese exports come from SMEs, 26.3 per cent of export earnings of Thailand come from SMEs, 20 per cent of export earnings of Sri Lanka come from SMEs, the amount is 18.8 per cent and 15.7 per cent for Republic of Korea and Indonesia respectively.

Now come to the point what is SME? SME is a specific segment / class of enterprises in a country. They are defined with different indicators by different countries. Bangladesh considered number of employment and replacement cost as indicators. Few countries considered revenue and asset as indicators.

Governments of the Asian countries have respective policies to promote and develop SMEs in respective countries. With some similarities different countries have emphasis upon different inceptives and supports to flourish the SMEs in respective states. Common policy supports are offering tax concession, providing repayable loan facilities, priority sector declaration etc. But few countries are providing equity supports and grants to foster SME growth in respective countries. For example Thailand, Malaysia, Singapore and Taipei is offering credit guarantee scheme for the SMEs whereas Bangladesh and Sri Lanka is missing this option. Besides these internal and external R&D facilities, product innovation, process innovation, patent license, internal financing, external financing, public support, NGO and foreign institutional support has direct impact on SME development of a country.

There is a positive correlation between innovation and SME development. Innovation could be in terms of product innovation (inventing a new product), process innovation (inventing a new way to manufacture a product with minimum resources / higher quality), improving products quality and standardization, ensuring efficient use of inputs to save resources, using alternative materials / substitute to produce a goods, inventing new machines / technology etc. Innovation could facilitate increased volume of production, entering into new markets, improved quality and solving social problems or needs. Its outcome could be increased production capacity, production flexibility, saving per unit cost, saving per unit resources etc. Innovation is expected to be outcome of internal research, national level academic research, acquisition of new companies, recruiting new human resources, formal research of government or foreign funded projects.

There are some specific barriers to innovation by the Asian SMEs especially for the SMEs of South Asia. Major barriers are lack of skilled / qualified manpower, scarcity of funding for R&D, Absence of institutional environment, Shortage of information, government as a barrier to innovation, infrastructural barrier to innovation, and market factors as barriers to innovation etc. A recent study shows that, about 80 per cent of the South Asian SMEs are depending upon internal resources for innovation. Only 4 – 6 per cent of the SMEs used to purchase new idea for fostering innovation. About 30 per cent SMEs have idea about use of journals, research findings and other sources of innovation. About 13 per cent of innovative small and medium firms use government funding for innovation. But sometimes various government policies and strict monitoring plays a negative role for innovation in many South Asian countries.

Availability of long term low cost financing has a positive correlation with SME development of a country. Credit guarantee scheme is playing a significant role in SME development in many Asian countries. For example 70-80  per cent risk of SME loan is taken by credit guarantee scheme and rest 20 – 30  per cent risk in beard by the lending banks in Indonesia. Philippine provided about 1.6 billion local currency guarantee for lending to SMEs. The Thai Credit Guarantee Corporation guarantees 100 per cent of the payment stated in each letter of guarantee issued to participating banks, when prosecuted. However, it is done under the condition that the nonperforming guarantee does not exceed 16 per cent of the average guarantee outstanding in each portfolio that pools all guaranteed SME loans from the participating bank every year.

SME dominating countries of Asia are Republic of Korea and Indonesia (99.9 per cent), Cambodia (99.8 per cent), Japan, Vietnam and Thailand (99.7 per cent) of SMEs. But most employment generating (by SMEs) countries are Korea, Thailand, Bangladesh, Cambodia, and Japan. SMEs are contributing in GDP of China, Indonesia, Japan, Singapore and Korea etc. The lags behind Asian countries for SME development are Kazakhstan, Bangladesh, and Sri Lanka etc.

Bangladesh has National Industrial Policy 2016 emphasized on SME development as a means of poverty alleviation and employment generation, more specifically SME Policy Strategy to guide SME development in the country. There are a good number of organizations working for entrepreneurship development and SME promotions in Bangladesh. But the above discussion indicates that, Bangladesh till has to go a long way for the promotion and development of SMEs. Because it does not have share in terms of innovation, it is lagging behind in terms of low cost financing, credit guarantee facility so on and so forth.

Therefore it is the most appropriate time for capacity building of SME stakeholders in Bangladesh to foster promotion and development of SMEs. We have limitation is terms of human resources capacity, financing ability, innovation, standardization of products, managerial and technological know-how both in public and private sector SME stakeholders of Bangladesh. European Union funded a project (recently ended) titled INSPIRED initiated few capacity building activities for SME Stakeholders. Hopefully another EU funded project called PRISM will be started soon. This project could give emphasis on capacity building of human resources, establishing appropriate infrastructure, R&D capacity building, promoting innovation, facilitating financial access to SMEs, establishing testing laboratories, product designing and new product invention, focusing on target international market for fostering exports etc. Thus government and development partners could play a vital role to strengthen SME stakeholder’s capacity for promoting SME development in Bangladesh and uplift Bangladeshi SME sectors into Asian even global standard.

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